ITC: ITC may need 10-15% price hike for cigarettes



Mumbai: Volume growth for India’s largest cigarette maker is expected to suffer as Indian Finance Minister Nirmala Sitharaman on Saturday proposed higher levies on cigarettes and other tobacco products in the country’s budget Union, brokers said.

ITC stock fell 7% on Saturday, registering its largest single-day decline since July 2017 and also finished as the biggest laggard on the Sensex.

“This will require

to increase prices by 10 to 15%, in a very weak macroeconomic environment leading to a sharp drop in single-digit volumes. Even after experiencing price increases of more than 10 percent, cigarette EBIT is expected to remain stable at best in FY21, ”said Credit Suisse.

ITC’s cigarette business, which accounts for three out of every four cigarettes sold legally, saw revenue growth of 4.7% in the December quarter to Rs 5,310.98 crore. The company’s net profit for the period rose 29% to Rs 4,141.93 crore, beating Street estimates.

Brokerages Phillip Capital and Edelweiss lowered the action as a result of the budget, estimating a 6-7% increase in cigarette prices by the ITC.

“The NCCD component has been multiplied by 2 to 4 for all sizes of sticks. This resulted in tax increases of around 9 to 15%. The tax increases, in effect, at the portfolio level are likely to be around 11%, which means the company would have to increase the MRP by 6-7% to compensate for the same, ”Edelweiss said. , demoting the ITC to “hold” to “buy” with a target price of Rs 250 on the stock.

The government announced a tax hike on cigarettes after a two-year benevolent stance in order to support its public treasury and close a growing budget deficit.

“We believe that ITC will have to experience a price increase of at least 6-7% on a weighted average basis, even if it has to maintain an EBIT in INR similar to what it will deliver during FY20 . ITC volume growth for FY21 is likely to impact all lengths, with maximum impact on DSFT due to a sluggish economic environment and increased competition from GPI and VST Industries ” , said Phillip Capital. The brokerage has downgraded the stock to “neutral” and has a target price of Rs 215.


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